Acquiring a micro SaaS is a no-brainer. Why aren't more Indie Hackers doing it?

If you’ve followed the financial markets in the last few weeks, you’ve likely only seen red. There’s talks of a recession, a repeat of 2008 or the usual doomsday predictions that come with watching Fox News (stop! that’s self harm).

But that’s not even surprising part. What is surprising is what little macro economics i think i understood, turns out isn’t quite true.

🔻 Stocks (S&P 500) are down (-20% YTD) and still bleeding. Alright.

🔻 Crypto is down (-32% YTD). Hmm bitcoin was supposed to be a hedge against inflation, USD and much more. But whatever.

🔻 And Bonds are down (-10%) ??? Umm a traditional asset supposed to be inversely correlated with stocks.

🔻 Real estate? don’t know much here, but TBH doesn’t look good.

So everything is correlated and is taking a nose dive then? Wonderful. As an avg joe investor, is there anywhere else i can put my money?

Now if you’re like, "@chadburger what has this got to do with Indie Hackers, this isn’t boggleheads and can you please get to the point?"

Sure. TL;DR

Buying a micro SaaS biz/ app as an investment probably surpasses returns of all aforementioned investment asset classes.

Here’s how:
So you wanna make $10K/ MRR. Plunk $250K into a cashflowing micro SaaS (or a bundle of them) that cumulative generate said MRR and are on sale for a revenue multiple of 25x MRR (1.5x - 4x ARR being an ideal range).
That’s a return on your investment (ROI) of ~4% a MONTH. In contrast, the S&P500 has historically returned ~10% per YEAR.

Astute readers will note the economics work as long as you stick to buying at a reasonable revenue multiple (< 4x ARR) irrespective of whether you invest 2K, 20K or 200K.

That’s the TL;DR. The rest is me just rambling on to drive the point home.

By now hopefully you have more questions than before you started reading and i'm anticipating “buuut @chadburger what about...”

Let me get to answering them.

1. Reframing the idea 🧠

There’s nothing novel in what i’m saying. Buying a small biz.. pfft everybody knows that idea. Yet i don't see that many folks on IH exploring this option.
But reframing this might help. Instead of thinking of it as simply buying, it’s useful to think of this as an investment into a new asset class.

Beyond traditional assets, you could invest in hedge funds. Or private equity. Or get into deals as an LP for VC funds or rolling funds (ala angellist.com). But then you need to be an accredited investor ($$) and if so, y'all have no business reading this post on IH.
...alright sorry, didn’t mean to gatekeep anyone. Welcome accredited reader :)

For the rest of us small fish, I've seen good deals starting from a few 1000$ with a niche product market fit, cash flow and promising potential.

2. Benchmarking 📈

Best (bull) case scenario if you invest in the broader stock market, the mean time-to-double (TTD) your investment is 7 years (10% CAGR).

Meanwhile buying a biz at 25x MRR, time-to-double shrinks to 4.1 years. This is the worst case outcome, of not being able to scale and continuing to earn the same MRR*.
(*If you run the biz into the ground OTOH, well... will talk about the risks soon)

Now this is not a hit-piece on the stock market. My example just uses the S&P as a benchmark for this new asset class. Buying (or dollar cost averaging) and hodl-ing a broad market index I feel is still the sane approach for that specific asset class i.e public companies (index over stock picking).

Unless ofcourse you’re into NFT’s, and if so you can stop reading now. No for real, this is boring Charlie Munger type stuff. And i’m kinda into buying businesses cheaper than .eth gas fees on monkey pics.

3. You don’t have to #yolo it all. But no worries if you do 💸

Okay so far if you’re still with me,
Find a biz that fits your criteria on flippa.com or microacquire.com (or others i’d also like to know).

Trade capital you're comfortable with for recurring revenue. Some diligence should help ensure revenue doesn’t decline over time i.e good chunk of organic sales and some scalability potential.

Like I did with @retrowidget a while back from flippa. Now i didn’t have a spare $300K to plunk on a game. A game that’s trying to trade your hard earned $1.99 in exchange for offering nostalgia-as-a -service.
But i did have like $2500 to splurge on this app that made ~$80-90/mo in sales. An MRR multiple of ~30x. So the economics (~4% monthly return) still works out. Ramen supplies for future years secured!
Revenue has been organic for the past 6 months without lifting so much as a finger. Ofcourse i have some big dreams for it but i’ll take the monthly ramen money for now. (This was mostly an experiment and more on this in a follow up post sometime)

Here's another great share closed-a-60k-saas-acquisition from @brucem. That led to a comment from me which snowballed into this post (h/t @austinparker).

4. Risks

(booo 👎👎 #yolo)

• Your organic revenue could decline. No different than had you bootstrapped to this point and were scaling it. (SEO /ASO rules change, new competitors, customer churn yada yada)
• You run the biz to the ground. Not sure how, but what i'm sure of is crashing and burning and learning real world lessons with your own capital at stake would still be better than a 2 year MBA*.
  (*Okay no shade some MBA's are cool)
• Yet surprisingly not being able to scale is not even that big a risk. You recoup your investment within a reasonable timeframe(in x years at x ARR). From there on it's purely profits.
  (remember low rev multiple and not insane VC multiples of 20x+ ARR)

Hope this was a convincing argument for you to acquire your first biz. It’s almost like i’m doing free marketing for @microacquire or something (big fan but this is not a sponsored post lol)

I truly feel having a community of Indie Makers alongside Indie Acquirers to provide the right liquidity is what makes for interesting marketplaces and richer communities.